Monetary Policy

Ron Paul's Fort Knox Fever

Ron Paul, the quixotic congressman and three-time Presidential candidate, has won a following among libertarians and government skeptics for his campaign to abolish the Federal Reserve. Now the Texas Republican has embarked on a new monetary mission: He wants to throw open the doors to Fort Knox.

Paul isn't so sure the nation's supply of gold is all accounted for and thinks it might not exist at all. He has introduced legislation that would require an independent count of the 5,000-plus tons of gold bullion that's sacked away in the Kentucky vault, as well as smaller amounts held in government facilities in Denver, West Point, and New York City. Paul also wants a lab to test the bars, to prove it's as pure as the U.S. Treasury Dept. says.

Paul, who has said he thinks it's possible there is no gold at Fort Knox, told Bloomberg Businessweek the government is asking the American people to trust that all the gold is there, while not allowing site visits and not publishing all the data.

As chairman of a House Financial Services subcommittee that oversees the gold stores, Paul called a hearing on the matter for June 23. One man who's looking forward to refuting the congressman's doubts: the person in Washington who has actually held those gleaming, 27-pound gold bars in his own hands. Eric M. Thorson, the inspector general of the Treasury, is responsible for keeping track of the U.S. Mint's deep storage gold and silver reserves. Last September, he became the first outsider in 37 years to be granted full access to the U.S. Bullion Depository, as Fort Knox is formally known.

Opened in 1937, the vault is encased in 16,000 cubic feet of granite and 4,200 cubic yards of concrete. The depository is a classified facility, the Mint notes on its website. No visitors are permitted, and no exceptions are made. Until September, even Thorson and his team of auditors had never stood in the presence of all the gold. Their annual reviews mostly consisted of making sure the locked compartments hadn't been opened. At the time, the tamper guards were decidedly 18th century: Each door was secured with special tape and sealing wax.

Last year the Mint upgraded to a high-security cable lock. With Thorson watching, the seals were broken. Thorson stepped inside the compartment. It is a staggering amount of gold, he says. It loses its meaning to look at it.

Thorson tried to reassure Paul that the loot is all there. I can tell you unequivocally that the gold reserves do exist in the amounts reported, and the controls over it ensure absolute security, he wrote Paul in a letter. He never heard back. The congressman's two-page bill, introduced in April, calls on the Treasury to conduct a full audit of the gold. The Government Accountability Office would then review the results. It also orders a full assay of the government's gold reserves. A small portion of each of the approximately 700,000 gold bars would be extracted and tested for purity. According to Treasury estimates, testing all that gold would take 400 people working full time for six months to complete and cost at least $15 million. Paul now says he would be satisfied with a representative sampling of the bullion.

Since the U.S. bucked the gold standard in 1971 and stopped redeeming currency for precious metal, the reserve no longer serves an essential function. Paul and other Republicans have advocated selling it to help ease the nation's debt burden. At today's price of $1,500-plus an ounce, its worth about $395 billion—a handsome sum, though barely enough to scratch the $14 trillion debt.

It's doubtful that the gold will be sold or that Paul's audit will happen. The idea has yet to attract much support and is expected to wither. It's the implication that the government has made off with the gold as part of some undefined conspiracy that bothers Thorson. It's irresponsible to say this without the evidence to back it up, he says. I have the evidence. I personally saw it.

The bottom line: Paul's theory that U.S. gold reserves may be missing plays to the conspiracy crowd—and would cost a mint to disprove.